It may be time to take profits in this outperforming bank stock, according to the charts
Shares of Citigroup (C) have far outpaced the major equity benchmarks in 2024, gaining around 22% year-to-date versus the S & P 500’s 13%. But a thorough technical analysis review using multiple time frame analysis suggests a high likelihood of a downside reversal. The weekly chart shows the dramatic and fairly consistent rise in Citigroup, from an October low around $38 to its recent peak right at the $65 level: The weekly PPO indicator (bottom panel) registered a key buy signal in early November, confirming that a new uptrend was likely in place. Soon after, the stock broke above its 40-week moving average, validating the strength of the rally off the October low. Then in February 2024, the stock pushed above the 150-week moving average, validating the strength and persistence of the uptrend phase. Last month, C finally reached a 61.8% Fibonacci retracement level, based on the 2021-2023 bear phase. This occurred soon after the weekly RSI was at its highest level since the 2021 price peak. The weekly PPO indicator has since registered a sell signal, indicating that the previous uptrend phase is likely terminated. The last time we saw a similar PPO sell signal was in June 2021, soon after the top for Citigroup. The daily chart gives us a clearer picture of price dynamics leading to the $65 level, and also can give us a sense of downside potential if a top is confirmed here. The first thing that jumps off the monitor for me is the bearish momentum divergence, with higher price highs and lower RSI values from March through May 2024. C peaked out around $64 in late March with the RSI value around 80, and then hit $65 in mid-May with the RSI only around 65. This pattern of higher prices with weaker momentum implies a lack of upside thrust and often occurs at major market tops. Now it’s all about whether the RSI will hold the 40 level. In bull phases, the RSI tends to become overbought on rallies and will often hold the 40 level on pullbacks. You can see this on the Citigroup chart, where the RSI remained mostly below 60 through most of 2023, until after the October low when the entire range of the RSI shifted higher. So if the RSI breaks below 40 in the coming weeks, that would imply a downward shift in momentum, and could confirm a new bear phase for C. This week, Citigroup has broken below its 50-day moving average for the second time in 2024. The previous instance as in April after a quick pullback from the March high, and C recovered quickly. But a failure to regain the 50-day moving average in early June would mean the previous uptrend phase is most likely exhausted. Note the relative strength in the bottom panel, showing how Citigroup has now begun to underperform the S & P 500 over the last four weeks. With leading names like NVDA pushing to new all-time highs, shares of Citigroup are just not helping us beat the benchmark in recent weeks. How can we identify downside targets if and when Citigroup continues to deteriorate? I’m immediately drawn to the April low around $57, which lines up very well with the previous swing high from late January. This “pivot point” on the chart can serve as a sort of magnet for price action, and at the very least, we should expect a brief bounce off this clear level of support. Citigroup appears to be showing all the signs of upward exhaustion, from bearish momentum divergences after testing resistance to a failure to hold moving average support. Savvy investors recognize that strong trends lead to strong returns, and Citigroup may just be signaling that from a technical perspective its best days are in the past. -David Keller, CMT marketmisbehavior.com DISCLOSURES: (None) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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